Opinion
No. CV-02-01138-EFS (SHx)
February 6, 2003
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS THE FIRST, SECOND, THIRD AND FOURTH CLAIMS OF PLAINTIFFS' FIRST AMENDED COMPLAINT
BEFORE THE COURT, for hearing without oral argument, is Defendant Allstate Insurance Company's Motion to Dismiss the First, Second, Third and Fourth Claims of Plaintiffs' First Amended Complaint, (Ct. Rec. 47). For the reasons stated herein, the Court grants the motion.
I. Factual Allegations Relevant to this Motion
The following facts, taken from the Complaint, are, for the purposes of this motion, assumed to be true. However, legal conclusions need not be assumed true, even where cast as factual allegations. Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). The Court also need not accept as true factual allegations when contradicted by the document referred to in and attached to the Complaint. Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295-96 (9th Cir. 1998) ("However, we are not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint.")
The Rashtians allege that on January 13, 1994, they received a letter from Defendant Allstate Insurance Company ("Allstate"), offering them optional earthquake insurance. (Ct. Rec.46 at 2, ¶ 3.) On that same date, the Rashtians telephoned Allstate's agent, Gary Hogan, to request the additional earthquake coverage. ( Id. at ¶ 4.) At that time, the Rashtians and Allstate agreed to insure their home located at 507 7th Street, Santa Monica, California against earthquake damage of up to $100,000. ( Id.) Allstate thereafter issued an amended policy, No. 004496305, on January 14, 1994. ( Id. at ¶ 4; Ex. 1.) On January 17, 1994, the Rashtians' house located at 507 7th Street, Santa Monica, California sustained damage as a result of the Northridge earthquake. ( Id. at 2-3, ¶ 5.) Subsequently, Allstate has failed to provide coverage under the policy, denying any earthquake coverage existed. ( Id. at 3, ¶ 9; Id. at 4, ¶ 15.)
II. Standard for a Motion to Dismiss
Allstate has filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). In reviewing such a motion the Court accepts all allegations in the complaint as true and construes them in the light most favorable to the plaintiff. Integrated Res. Equity Corp. v. Founders Bank of Ariz., 74 F.3d 1246 (9th Cir. 1996). The Court will grant the motion if the Complaint states no facts which, if proven, would entitle the plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-6 (1957); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).
III. Discussion
The Rashtian allege four claims against Allstate: (1) breach of an oral contract; (2) breach of a written contract; (3) reformation, and (4) breach of the implied covenant of good faith and fair dealing. Allstate has moved to dismiss each of these causes of action.
In support of their first claim, breach of an oral insurance contract, the Rashtians allege that on January 13, 1994, they agreed to an amended insurance contract, including earthquake insurance, with Mr. Hogan on the telephone. While the complaint could state a cause of action for breach of an oral contract were that the end of the story, it is not. The Complaint goes on to allege that on January 14, 1994, Allstate issued an amended insurance policy to the Rashtians. The issuance of a subsequent written insurance policy supercedes any prior oral agreements. Spott Electrical Co. v. Industrial Indem. Co, 30 Cal.App.3d 797, 805 (1973); Dutton Dredge Co. v. United States Fid. Guar. Co., 136 Cal.App. 574, 579 (1934). Because there was a written policy issued here, it superceded the oral policy agreements of January 13, 1994, and became the contract as of January 14, 1994. For that reason, the Rashtians' breach of oral contract fails as a matter of law. While in opposing Allstate's motion, the Rashtians have asserted alternative pleading, their argument is unsupported by the factual claims of the complaint filed. It would be a different situation had the Rashtians' pled that there was a written policy, and in the alternative, that there was no written policy. But, they in fact pled only that there was a written policy. Because the facts as pled, in connection with the attached policy, preclude the pleading, within the confines of Rule 11, of an amended complaint which would state a claim for breach of an oral contract, the Court dismisses this claim without leave to replead.
In support of their second claim, breach of a written insurance contract, the Rashtians allege that the amended policy, which is attached to the Complaint as Exhibit 1, included earthquake coverage. While the Court is required to accept as true allegations in the complaint, where the allegations are based upon a document attached to the complaint, the express terms of that document control. Steckman v. Hart Brewing, Inc., 143 F.3d at 1295-96. Having reviewed the insurance contract attached to the Complaint, the Court notes that it states earthquake coverage is optional, and applies only if listed on the Declarations page, with a premium shown. (Ct. Rec. 46, Ex. 1 at 0000043.) That page does not list earthquake coverage. ( Id., Ex. 1 at 0000010.) Because the policy, as written, does not include earthquake coverage, Allstate cannot have breached the written insurance contract by denying the Rashtians' claim for coverage. For that reason, the Court grants Allstate's motion.
In opposition, the Rashtians have submitted a prior policy issued to them by Allstate which included on the Declarations page the express statement that the policy did not include earthquake insurance. Finding that this statement was not present in the policy at issue here, the Rashtians argue that the policy at issue did include earthquake insurance. Allstate has objected to the Rashtians' submission because a Court reviewing a motion under Federal Rule of Civil Procedure 12(b)(6) is limited to reviewing the Complaint. Because the Court finds no probative value in the contrasting language of the two policies, the Court finds it unnecessary to rule on the objection. Whether or not the express restatement exists on the Declarations page, both policies explicitly state that earthquake insurance is not automatically included, and must be added to the declarations page before coverage exists.
The Rashtians also argue that the doctrines of waiver, estoppel or oral modification should preclude Allstate from raising the written policy's explicit exclusion of earthquake coverage, based upon the offer letter received on or about January 13, 1994. Allstate objects to the Rashtians' argument because it relies on the Declaration of Abdollah Rashtian, which is not properly before the Court on a Rule 12(b)(6) motion. The Court need not resolve this dispute because even were the Court to consider the offer letter, the policy number it refers to, 004873273 is not the policy number on the document attached to the Complaint, which is 004496305. Because the offer letter does not involve the policy allegedly the subject of waiver, the Plaintiffs lose whether or not the Court considers the offer letter.
The Rashtians' third cause of action, for reformation, fails because it is not timely. California Code of Civil Procedure Section 340.9 revives any "insurance claim for damages arising out of the Northridge Earthquake of 1994." As interpreted by the California state courts, Section 340.9 does not revive claims other than for breach of contract and breach of the implied covenant of good faith and fair dealing. 20th Century Ins. v. Superior Court (Ahles), 90 Cal.App.4th 1247, 1280-1281 (2001). An action for reformation does not fit into on of those two categories because reformation is an equitable action which seeks to rewrite the terms of a contract to aline with the parties' intent. Appalachian Ins. Co. v. McDonnell Douglas Corp., 214 Cal.App.3d 1, 19 (1989). A reformation action does not claim that the other side breached a contract or any implied covenant, but that the contract itself does not conform to the parties' intent. 5 Witkin, Cal. Proc., § 762 at 217 (4th ed.). Because the reformation claim simply does not assert a breach of contract or bad faith, it is not revived by Section 340.9
The Rashtians also assert that because the reformation claim arises from the same transaction or occurrence as the breach of contract claim, it must be revived as part of the same case or controversy. See Fed.R.Civ.P. 15(c). Two claims arise from the same transaction or occurrence when the facts and evidence used to prove each of them are the same. In Re Markus, 313 F.3d 1146, 1150 (9th Cir. 2002). In this case the breach of contract and bad faith claims arise from events occurring after January 17, 1994 as they deal with Allstate's alleged wrongful denial of the Rashtians' earthquake claim. The reformation claim deals with events occurring between approximately January 13, 1994 and January 14, 1994, when Allstate issues the Rashtians' an amended policy as they deal with Allstate's alleged or mistaken or fraudulent issuance of the written policy. Allstate is correct that the reformation claim existed completely independently from any earthquake claim because it would have accrued whether or not the Northridge earthquake ever occurred. The Court thus concludes that the Rashtians' reformation claim arose in 1994, and was not revived by Section 340.9. As a three year statute of limitations applies to the reformation action, North Star Reinsurrance Corp. v. Superior Court, 10 Cal.App.4th 1815 (1992); Cal. Civ Code § 338(d), the Rashtians case would have to have been brought during 1997. The undisputed fact that it was not brought before 2001 makes the reformation claim untimely and therefore subject to dismissal.
The Rashtians' argument that Section 340.9 revives all claims that arise from the same transaction as the breach of contract and bad faith claims is unsupported by 20th Century Ins. While the proof of a fraud claim arising from an insurance company's handling of a Northridge earthquake case, for example, would probably involve the same transaction as a breach of contract claim arising from that same earthquake, so as to create a claim preclusion bar, 20th Century held that Section 340.9's revival of the breach of contract does not revive the fraud claim.
20th Century Ins. Co. v. Superior Court (Ahles) 90 Cal.App.4th 1247, 1280-81 (2001). However, because the Court does not view the breach of contract claim to be the same transaction as the reformation claim, the Court need not rule on the Rashtians' assertion of the scope of 340.9.
Finally, the Rashtians' breach of the covenant of good faith and fair dealing is premised upon Allstate's breach of contract. If, as the Court rules, Allstate did not breach the contract, it cannot have acted in bad faith. Waller v. Truck Ins. Exch., 11 Cal.4th 1, 36 (1995). Because the Court has found above that the Rashtians have failed to state a claim for breach of contract because the only legally cognizable contract did not include earthquake coverage. Without earthquake coverage, the Rashtians were not due any policy benefits. "Absent that contractual right [to benefits], however, the implied covenant has nothing upon which to act as a supplement, and `should not be endowed with an existence independent of its contractual underpinnings.'" Id. (quoting Love v. Fire Ins. Exch., 21 Cal.App.3d 1136, 1153 (1990)). For this reason, the Rashtians bad faith claim must be likewise dismissed. Accordingly,
IT IS HEREBY ORDERED THAT:
1. Defendant Allstate Insurance's Company's Motion to Dismiss, the First, Second, Third, and Fourth Claims of the Plaintiffs First Amended Complaint, (Ct. Rec. ___), is GRANTED.
2. Plaintiffs' First Amended Complaint, (Ct. Rec. 46), is DISMISSED WITH PREJUDICE AND WITHOUT LEAVE TO AMEND.
IT IS SO ORDERED. The District Court Executive is directed to:
A) enter this order;
B) prepare and enter Judgment dismissing the Complaint with prejudice and without leave to amend;
C) provide copies to all counsel; and
D) close this file.